1. The Economic Impact of HIV/AIDS Shanta Devarajan

2. Key features of HIV/AIDS Affects more than the victim Affects multiple sectors of the economy Requires resources to fight the disease

3. Households Loss of income –Productivity loss Tea pickers in Kenya earned 17 percent less in the two years before they retired or died from AIDS –Earnings loss (absenteeism) Sick sugar mill workers in South Africa lost 10 percent of earnings two years before retirement

4. Households: effect on others Caregivers: South Africa (Survey of 771 AIDS households) – Two-thirds are women –22 percent took time off from work –20 percent had to forgo school or study time –60 percent took time from other housework

5. Key features of HIV/AIDS Affects more than the victim Affects multiple sectors of the economy Requires resources to fight the disease

6. Households: effect on others Orphans (as share of pop’n 17 and under) 2003 (due to AIDS)2010 Botswana 2015 24 South Africa 13 4.5 19 –Lower incomes (higher dependency ratios) –Lower school enrolment rates (13 percent)

7. Key features of HIV/AIDS Affects more than the victim Affects multiple sectors of the economy Requires resources to fight the disease

8. Households: effect on other sectors Health care costs (South Africa study) –AIDS households spend 33 percent of income on health care (compared with national average of 4 percent) –Funeral costs (four months’ salary)

9. Firms: effect on other sectors Medical costs (25-35 percent of total) Sick leave, productivity loss, training (20 percent of total) Pension costs Companies may find it profitable to introduce AIDS prevention and treatment plans, as well as revise their pension plans Large companies more likely than smaller ones

10. Key features of HIV/AIDS Affects more than the victim Affects multiple sectors of the economy Requires resources to fight the disease

11. Macroeconomic costs Labor supply (e.g., South African labor force expected to decline by 12.8 percent by 2010) –But: a 13 percent decline in labor supply reduces GDP by only 8 percent or so, implying that GDP per capita rises

12. Macroeconomic costs (cont’d) Productivity losses (absenteeism, retraining workers, death benefits) –Estimated to add upto 15 percent to companies’ wage bill (South Africa, Cote d’Ivoire) –But: Large companies especially are able to adapt, reducing productivity losses

13. Macroeconomic costs (cont’d) Public finances –Increased health expenditures, reducing public investment –Reduces GDP growth –But: Assumes that public investment would have been productive

14. Previous estimates of the impact of AIDS on GDP growth (%) Arndt and Lewis (2000) South Africa-0.8 to –1.0 Bonnel (2000)47 countries-0.7 Kambou, Devarajan and Over (1992) Cameroon-0.5 to –1.2 Over (1992)30 countries-0.3 to –0.6 Sackey and Raparla (2000) Swaziland, Lesotho, Namibia -0.8 to –1.5

15. Macroeconomic costs (cont’d) Human capital –AIDS kills young adults –Reduces incentive and means to invest in children’s education –Reduces parents’ transmission of knowledge to their children

16. Implications Children’s ability to invest in their children’s education is lower, and so on… Vicious cycle Previous estimates of impact of AIDS may seriously underestimate the long-run impact

18. South Africa: Probabilities Both alive Father dead Mother dead Both dead 1990 (no AIDS) 0.8550.1010.0390.005

19. South Africa: Probabilities Both alive Father dead Mother dead Both dead 1990 (no AIDS) 0.8550.1010.0390.005 2010 (with AIDS) 0.2940.1680.3470.194

20. Effect of AIDS (with pooling) No AIDS yearHuman capital EducationHousehold income 19602.620.5019.5 19903.140.6422.3 20204.320.9729.6 20507.861.0053.7 208013.851.0094.7

21. Effect of AIDS No AIDSAIDS yearHuman capital EducationHousehold income Human capital EducationHousehold income 19602.620.5019.52.620.519.5 19903.140.6422.33.140.226.4 20204.320.9729.62.01017.8 20507.901.0053.71.00012.9 208013.851.0094.71.00012.9

22. Can economics help fight AIDS? Key features of HIV/AIDS –Affects more than the victim –Affects others sectors –Requires resources Economic impact of HIV/AIDS –Common metric to evaluate impact on different people, sectors –Behavioral response –Measure of how much to spend on fighting AIDS –Build political support